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Low-cost airlines bet on data to drive profit

DUBLIN : Europe's low-cost airlines once mocked the air miles programs run by flag carriers as expensive relics of a bygone era. But after watching wide-eyed as customer databases were valued at billions of dollars, they are scrambling to catch up.

Europe's two largest low-cost carriers, Ryanair (RYA.I) and easyJet (EZJ.L) have both swallowed their pride in the past year and launched customer loyalty schemes and both have announced significant investments in data analytics.

Their aim is to ape retailers like Amazon.com and Tesco in driving profits by leveraging data from vast online customer bases to create highly personalized offers and adapt services to customer preferences more quickly.

He has overseen the hiring of 150 IT specialists since he was appointed two and a half years ago. "Airlines are not good at this. We're still crap compared to what retailers do."

easyJet chief executive Carolyn McCall, who last year appointed the company's first head of data science to oversee a team of 25 data analytics specialists, has described data as "incredibly important" for the airline.

A spokesman for easyJet described the potential benefits from digitization and data analytics as "exponential".

Both airlines have promised a detailed breakdown of their digital data drives and the financial returns in the autumn.

John Walton, who writes for online aviation publication Runway Girl Network, said that from the customer's point of view, they and other airlines had some way to go.

"I see few visible signs of European airlines — or indeed other airlines — using the rich data they hold to drive bookings and revenues," he said, citing a lack of useful, targeted offers from any of the half a dozen airline loyalty schemes he held.

DIFFERENT APPROACHES

Ryanair and easyJet are taking different approaches, with Ryanair focusing squarely on selling optional extras while easyJet sees ticket pricing at the heart of its data drive.

easyJet was first to move, investing in artificial intelligence over the past few years to drive the algorithm that determines seat pricing in real time depending on demand.

Its computers track over a billion searches on the easyJet site annually to see what prices, destinations or travel times prompted them to book or leave the web site and adjust all three as soon as possible.

Spokesman Paul Moore said that kind of data more than compensated for the airline's later collection of personal information through its Flight Club loyalty scheme.

"We don't have the legacy frequent flyer systems the legacy carriers have, but we have been selling online far longer and at far greater scale than they have," he said.

"The data we have on purchasing patterns and flight patterns is, we suspect, larger and richer by some way."

Ryanair, whose business model is to cut fares as far as possible to fill planes and make money selling optional extras, was a little later to the game. It has spent much of the past two years overhauling its web and phone offerings and is preparing a push to get more of its 100 million customers to register for its My Ryanair loyalty program.

It is a far cry from the early 1990s, when Michael O'Leary scrapped the airline's Frequent Flyer scheme on taking over as chief executive. Soon after, easyJet began a campaign for frequent flyer schemes to be scrapped as "disguised bribery".

First introduced in the 1980s, air miles programmes allowing customers to earn free flights by sticking to one carrier were sometimes set up as independent entities. In 2014, analysts put a value of up to $2.5 billion on the loyalty division of Qantas when it was considering floating it or selling a part.

"TREND OF THE FUTURE"

Alongside increasing sales of tickets and ancillaries, better digital infrastructure can also enable innovations like automatically rebooking customers after canceled flights and sending stranded passengers hotel reservations to their phones.

Legacy airlines are also investing heavily, with Lufthansa (LHAG.DE) Chief Executive Carsten Spohr describing digitisation as the "trend of the future" with plans to invest 400 million in the 'digitisation' of the group's airlines by 2020.

But the most dramatic improvements in recent years have come from the low cost side, said Rob Kemp, who provides feedback to major European airlines in his role as Chief Technology Officer at Momondo Group, which runs ticket price comparison websites.

"The low-cost carriers are really taking that as a clear mission. I just don't see as much of that from the larger airlines at the moment," Kemp said.

Ryanair in the past employed a low-cost scatter-gun approach, offering every service from car hire to travel insurance to new luggage to every customer, irrespective of whether they had bought them in the past.

A more streamlined system might offer someone booking a last-minute mid-week flight to London a train ticket, Jacobs said, while someone with three children booking the same flight six months ahead might be offered a discount on a large hire car.

"It’s more about profitability than market share," he said. "You've got a website that’s getting so many visits, how do you monetize that? How are you getting those customers to buy more?"